Banks of the Year 2012: Credit where it’s due

Nov 1, 2012

Latin America's banks have much to celebrate this year

It is hardly news that life has become more challenging for
Brazil’s big banks. With economic growth slowing
and the Selic benchmark interest rate falling to earthly
levels, lenders are waving goodbye to profitability rates above
20%.

Although consumer credit has not brought the bubble many
feared, there is still the danger that lenders may have
overextended, particularly if the economy – which few
can count on any more to grow at the 6% of years past
– turns for the worse.

On top of this, the government has been piling pressure on
credit providers to lower the rates charged to consumers for
loans, credit cards and other products. Private lenders are
additionally challenged in that they have to compete with
state-owned Banco do Brasil and Caixa Econômica Federal,
which enjoy lower-cost federal funding.

Brazil’s larger banks are best equipped to
withstand lower profits and an increase in impairments, as well
as the new lower interest rate environment. The key will be
keeping credit costs low.

"The Selic is in an adjustment phase and is moving towards a
normal rate that is compatible with the solid fundamentals the
Brazilian economy now has," Bradesco CEO Luiz Trabuco Cappi
tells LatinFinance. "The quality of our economy means there is
no longer any reason for double-digit interest rates.
Bradesco’s working scenario is one in which Brazil
has changed for the better and this change is permanent."

Bank of the Year
& Best Bank Brazil: Bradesco

For the second year in a row, Bradesco’s
diversification and retail focus leave it in a strong position
to confront these challenges. Focused on organic retail growth
and buoyed by an insurance business responsible for 30% of its
profits, the well-capitalized bank has nearly caught up with
Itaú – Brazil’s biggest bank since
its merger with Unibanco in 2008 – in terms of total
assets.

As of June 30, Itaú was Brazil’s largest
bank by assets with $888 billion reais ($437 billion), with
Bradesco at $831 billion reais. In 2008, the gap was much
larger, with Itaú leading by $632 billion reais to $454
billion reais. The growth has been entirely organic. Since the
Itaú-Unibanco merger, organic expansion has been the key
for all the players, with no remaining large banks left to
buy.

Staying home

While other banks have made small acquisitions abroad,
Bradesco still sees plenty of room to grow in Brazil. The bank
has been aggressively expanding its retail operations this
year, redirecting resources after losing out on the postal bank
contract to Banco do Brasil.

"The price in the auction was too high," says Luiz
Angelotti, the bank’s executive managing director,
explaining why Bradesco did not continue with the contract. "We
had an alternative plan which we decided was better. We made
the correct decision. This adds more value for the
company."

The bank opened 1,000 new branches in the second half of
2011. Bradesco reckons it can retain the postal clients who
will be reluctant to shift their accounts.

"We don’t expect to invest in retail abroad,"
Angelotti. "Our main strategy is to invest in the Brazilian
retail business. There is plenty of opportunity for growth in
Brazil."

The bank sees its limited presence abroad solely as a means
of supporting Brazilian companies overseas.

"We have a better return here in Brazil and we know the
market very well," says Angelotti. He highlights upward trends
in social mobility over the last eight years and points out
that 40 million Brazilians have yet to tap banking
services.

Its extended presence across the country, its broad range of
clients and its insurance business, leaves Bradesco better
placed to compete with the other large domestic banks.

Its insurance business also offers plenty of room to expand.
Brazil has exceptionally low insurance premiums for such a
large country. This stands at about 3.2% of GDP, and compares
with 8% in the US and 11% in Japan.

Bradesco also believes there are opportunities to be found
in the consolidation of the Brazilian insurance market where
there are still many small companies.

Trouble from Brasilia

As the country’s benchmark rate plummets, the
government is pressing lenders to charge customers fees closer
to international norms. In September, Bradesco lowered its
interest rates on credit card products, along with other
banks.

Improving efficiency is the key to operating in this new
environment. In this regard, Trabucco Cappi says the
bank’s prospects are "good." The main challenge
for Bradesco is how to do this while also expanding the scale
of its activity, Trabuco Cappi says. As part of this the bank
also wants to enlarge the relationships it has with existing
clients who are demanding new products and services.

The bank sees ROE in the long term to be in the region of
18%-20%, compared to 20% this year. The spread adjustments
should continue in the future, says Angelotti, and there are
some factors are not under Bradesco’s control,
such as the delinquency ratio, taxation and administrative
costs. Angelotti expects delinquencies to reduce in the future,
but says the government needs to do its share to reduce taxes
and administrative costs.

"We are taking measures to reduce the cost of our credit and
credit card operations," Trabuco Cappi says. "The reduction in
interest rates will improve default ratios and expand the loan
portfolio. These effects are positive for banking."

So far, the impact of these reductions in spreads has been
mostly marginal – even for state banks, according to
Fitch. This is mostly due to asset growth remaining strong and
to reductions in deposit rates. The ratings agency expects that
the effect on overall margins will become more important over
time, as they will more clearly highlight operational
inefficiencies.

Lower spreads, increased competition, the outlook for slower
GDP growth, and greater capital requirements will limit
Bradesco’s future profitability ratios, Fitch
says, but they will be at good levels and better than the peer
average.

Coping with a new reality

Non-performing loans have been an increasing problem for
Brazil’s banks. Bradesco’s
delinquency ratios have nudged up this year, though not as much
as other banks. Small and medium-sized business lending was
affected in 2011, and this year vehicle loans have caused
concern, affecting the delinquency ratios for banks including
Itaú and Banco do Brasil.

The sector’s NPL rate has reached 6% this year,
according to Fitch, compared to 2% in some Latin American
countries, and a 4% emerging markets average. Angelotti expects
Bradesco’s delinquency ratio to reduce in the
second half to around 4% (where it was at the beginning of the
year).

"The decrease should continue in 2013," Angelotti says. "In
this area, structurally lower Selic rates are a good thing, as
businesses and individuals will find it easier to make
payments."

Solid employment figures will have a positive effect on
individuals’ ability to make payments. The bank
expects the unemployment rate to improve from an already low
5.6%. Fitch says the bank’s credit quality is in
line with its peer average and its loan loss coverage among the
highest in the sector.

Bradesco’s large competitors have started to
venture into the payroll lending segment, once the focus of the
sector’s mid-size banks. Normally, experimentation
starts with smaller players and trickles up to the likes of
Bradesco and Itaú. This year Itaú formed a $1
billion reais joint venture with mid-sized lender Banco BMG for
payroll lending. The deal allows Itaú access to the
fast-growing payroll lending segment while keeping the risks at
arm’s length. If it goes well the joint venture
could be a model for other large players to follow.

Itaú has also moved this year to bring credit card
processing in-house, spending more than $5 billion to buy up
all of the shares in Redecard. Though seen as an expensive
acquisition, the synergies created are expected to be positive
for the bank.

With inflation threatening to rise in 2013 –
possibly forcing the central bank to lift rates next
year— this may not yet be the time to experiment.
Still the steady expansion seen for Brazil’s
economy ahead should provide ample room for
Brazil’s large banks to keep growing.

Bradesco plans to continue to expand organically to keep
pace with its large public and private competition. At the same
time lower funding costs and continued government pressure to
lend more to stimulate the economy should help Banco do Brasil
and Caixa continue to grow stronger.

"The greater participation by the federal banks on the
market is positive and creates a challenging situation,"
Trabuco Cappi says. "However, challenges have always been part
of banking activity in Brazil. The current situation is
motivating us to redouble our efforts and overcome these
challenges once again." LF

BrazilBest investment bank: Itaú
BBA

Although investors’ expectations for Brazil
have cooled, the domestic investment banking landscape
continues to invite competition. For the moment, the larger
Brazilian institutions still claim a lion’s share
of the business.

The offerings should grow next year, as lower interest rates
force investors to diversify –with implications for
both local fixed income and equities. The domestic corporate
bond market is set to expand as investors need more
non-government bonds. Infrastructure financing will also
require more bonds and bank lending. Brazilians have issued in
the cross-border markets this year along with the rest of the
region and the brisk pace looks set to continue.

"With rates going down and perhaps staying low, investors
are looking to shift resources to other asset classes,"
Jean-Marc Etlin, head of investment banking at Itaú,
tells LatinFinance. "In fixed income, investors are hungry for
yield and there is growing demand for credit across the ratings
spectrum."

Itaú led the league tables in the awards period for
DCM for Brazilian clients, including international and local
market deals, with $9.69 billion of issuance in the year to
June 30, according to Dealogic data. This included a $5.9
billion local market portion, also the largest during the
period.

Establishing a liquid secondary market will be key to
deepening the local fixed-income markets, Etlin says. The
introduction of fixed coupons as opposed to the existing
inflation-linked instruments will be central to this effort, he
adds.

The growing demand for credit is already having a salutary
effect on Brazil’s local fixed-income market.
Infrastructure spending, bringing banks such as Itaú the
opportunity to lend as well as raise funds through new asset
classes such as infrastructure debentures, should continue to
provide opportunities.

M&A activity will continue to be characterized by
foreign interest in Brazil. Itaú advised EBX on its $2
billion sale of a 5.63% stake to Mubadala in March. Latin
America remains a source of appeal to global players, Etlin
says. Ongoing consolidation in the key industry sectors
alongside continued, private equity activity should also prove
a boon.

The equity capital markets, however, have been a poor source
of revenues for all players in Brazil. Itaú booked $1.22
billion in ECM deals from Brazilian clients, the most during
the awards period. Bankers are hopeful there will be a pick-up
in issuance in 2013, following two years of disappointing
volumes, as investors that once found the country expensive may
now be motivated by falling valuations to return.

In the meanwhile, ECM attention has shifted this year to
LatAm’s ex-Brazil markets, which debt investors
have also focused on. This is a fact not lost on Itaú or
its largest Brazilian competitor BTG Pactual. Already
established in Chile, Itaú hopes to diversify its
activity across Latin America. This year, it was a bookrunner
on Santander Mexico’s $4 billion IPO.

Mexico’s banking sector is in good shape with
the country’s largest lenders largely isolated
from global turmoil and well poised to capitalize on the
economy’s expected growth. Output is likely to get
a boost in the coming years thanks to favorable global trends,
with promised reforms from a new government possibly adding a
further fillip.

All of Mexico’s big banks should benefit from
the improving conditions. While not the system’s
largest by assets, Banorte has used its integration following
the 2011 merger with Ixe Financial Group to gain ground on
foreign-owned players.

"OECD discussions are about deleveraging, while the story in
Mexico is about leveraging," Banorte chief executive Alejandro
Valenzuela tells LatinFinance.

Mexico’s strengthened fundamentals and economic
growth have successfully lifted the country’s
financial sector after a prolonged phase of intermittent
financial crises, Valenzuela says. With stronger Mexican
economic growth forecasted, Banorte sees itself in a position
to cater to the growing business lending market.

The bank has been integrating operations that resulted from
its merger with Ixe in 2011 – a deal that has made it
the third-largest financial institution in Mexico, surpassing
Santander. This has brought size as well as a stronger
investment banking operation. With no overhang from concerns of
a foreign parent, the bank is in a strong position to grow.

It has also been expanding non-bank assets. In January, the
bank merged its Afore Banorte pension operation with Afore XXI,
one of the country’s other large operators,
becoming a 50% partner in Afore XXI Banorte with the Mexican
Social Security Institute. Banorte’s pension
assets under management reached $225 billion pesos ($17.8
billion) at mid-year, up from just $86 billion pesos in
2010.

Banorte’s strategy for the next 12 months will
focus on continued integration, says Valenzuela. It will
center on increasing profitability by extracting synergies
from mergers. The bank also wants to take advantage of
opportunities for banking penetration that exist in Mexico, and
by cross-selling consumer products to its increasing client
base.

Additional acquisitions could play a role here, particularly
those that would allow it to achieve greater scale in the
pension and retirement fund business. Valenzuela says Banorte
is analyzing opportunities to scoop up the BBVA pension assets
in Mexico, part of a package the Spanish bank is looking to
unload that also includes assets in Chile, Colombia and
Peru.

"We want to look and see if those assets could generate
value and if we can afford them," Valenzuela says, noting that
the bank is in the early stages of analysis. "We will have a
clearer picture of where it stands within three to four
months."

Banorte’s banking assets increased to $890
billion pesos as of June 2012, which represents 14% growth from
the first half of 2011. The real growth in its total assets
under management – up to $1.4 trillion pesos at
mid-year from $1.3 trillion pesos the year before and from $712
billion pesos two years before – has come from the
pension and broker-dealer growth.

Banorte still sits third behind BBVA Bancomer and Banamex is
most credit categories, but has seen stronger growth in several
areas in the last 12 months, most notably credit cards and
government-related lending. It says it has the second largest
market presence in commercial and SME lending following the
integration of the Ixe operations. The bank has seen an overall
increase in market share over the past 12 months to 13% from
12% in deposits and to 14% from 13% in loans.

The bank has one of the lowest non-performing loan rates in
the Mexican financial system. NPLs also remain low in the
second half of 2012, at 1.8% of total loans versus the Mexico
average of 1.9% and smaller than the 2.4% reported during the
same period last year.

Banorte will continue to work in partnership with the IFC to
support small and medium-size enterprise financing with special
guarantees, as well as other priority sectors such as
agribusiness, low and middle income housing and infrastructure
financing. SME lending does not yet match the
SME’s contribution to GDP.

Profitability has also been strong. The bank’s
14% and return on assets of 1.2% at mid-year were among the
system’s highest. LF

MexicoBest investment bank: Banamex

If Mexico is truly the place to be in Latin America in the
next few years, there will be no shortage of investment banking
and capital markets opportunities. So far this year there have
already been signs of increased equity and debt capital markets
activity.

This will mean greater competition for the largest banks,
particularly Banamex, which has again shown itself able to
offer the widest range of options for Mexican clients.

"In the last year we’ve seen tremendous
activity compared to what we had two or three years ago," says
José Antonio González, Citi’s head
of global banking for Mexico. (Citi bought the Banamex
Financial Group in 2001.)

Mexico benefited from a strong banking sector during the
2008-2009 crisis and has built on that. So, with
Mexico’s GDP growing at around 4% annually
— at a faster pace than Brazil — it is ready
with a full slate of services for the uptick in activity.

Citi and Banamex led the league tables in total DCM volume
for Mexican issuers, counting both domestic market and
cross-border transactions, with $5.43 billion. This year, the
bank lead managed a $2 billion 2044 note for the Mexican
sovereign and a ¥80 billion ($1 billion) three and
five-year Samurai that was the first from the region without a
Japan Bank for International Cooperation guarantee.

Citi also brought large offerings to the international
buy-side from corporate issuers including the CFE, Bimbo and
Pemex.

Mexico’s local debt capital market has remained
active while many of the region’s other local
markets have only seen sporadic activity. With some $70 billion
pesos issued — year to date (through late September),
González says around $130 billion pesos could be issued
in 2012 — this is up from around M$100 billion pesos
last year.

Banamex, headed up by chief executive Enrique Zorilla,
booked just over $2 billion-equivalent in domestic bond
transactions over the past twelve months. Large transactions on
the local side have included a $7 billion peso 2015 and 2021
bond sale from government development bank Banobras, deals from
corporate heavyweights Mexichem and Grupo Carso, and a $4
billion peso sale from retailer Liverpool.

"In the local market we’ve seen spread
tightening," says González . "Issuers have taken
advantage of lower rates. Everyone is still bullish on rates.
The macroeconomic conditions of the country are favorable. It
is a dream come true for an economist and certainly also for an
investment banker."

He says the Afores (pension funds) are still liquid and
there should be little in the way of inflationary pressure. He
foresees a pickup in specialized deals in the local market,
with real estate transactions and auto loan securitizations
likely to appear more frequently in 2013.

More recently, the bank handled more than $2 billion in debt
and equity transactions for Mexichem, following M&A work
that occurred during the awards period. Mexicans buying abroad
– América Móvil has been another notable
example – is a theme that has many banks eager to
generate business in several product areas.

"I expect a process of internationalization of Mexican
companies," says González. "In the next three years we
will see Mexican companies taking advantage of different
valuations, mainly in Europe. If these companies explore
international expansion they will have access to capital"

South America is also a destination for acquisitive Mexican
comapnies, says González. Citi-Banamex advised on more
than $5.7 billion in M&A deals involving Mexican
corporations in the twelve months to the end of August, the
second-highest total.

Banamex’s $374 million Mexican ECM volume made
it a leader for the period though historically this figure is
not exceptional.

Later in 2012, however, the fortunes for new issuance looked
set to pick up, spurred by deals including Santander
Mexico’s $4 billion IPO. Bankers expect more
opportunities for small and mid-size Mexican issuers.

"We have a number of new issuers," González says.
"There is visible supply getting prepared."
LF

Colombia
Best bank: Banco Davivienda

Colombia’s banks have been on a roll for the
past two years, but they face stiff competition from abroad.
The country’s robust growth has buoyed the banking
sector and fuelled a diversification of banking activities and
lending – a development not lost on foreign
institutions eyeing the market. Canada’s Scotia
Bank bought control of Colpatria for $1 billion, and
Chile’s Corpbanca has taken Santander Colombia for
$1.23 billion and Helm Bank, if completed, for $1.28
billion.

Though these moves make headlines, they are still far from
shaking up the regional pecking order, where Bancolombia and
Banco de Bogotá sit on the top. Colombia’s
Banco Davivienda, the system’s third-largest has
been steadily growing to diversify its lending away from
mortgages, under the watch of its president, Efrain Ferero.

The bank has now has become a regional player following its
agreement this year to acquire HSBC’s operations
in El Salvador, Honduras and Costa Rica for $801 million
– a change in strategy that reflects a strengthening
of its position at home. "This acquisition was a surprise
because they’ve never gone outside the country,"
says Felipe Carvallo, an analyst at Moody’s.

A diversified bank with a 50% commercial lending footprint
and the rest split between mortgage and consumer products.
Banco Davivienda has evolved since the 1990s from being a
mortgage finance company, to achieve a balance sheet for which
corporate lending has become increasingly important.

Commercial and mortgage loans have played a large role in
recent portfolio growth, with the net portfolio at $25.9
trillion pesos ($14.4 billion), up 18.2% from the year
before.

Net income for the first quarter of 2012 was $215 billion
pesos, up 9.9% compared to the fourth quarter last year and
25.5% versus the same quarter in 2011. Its SME segment also
grew 24% compared to the year before. Its housing portfolio
grew some 23% to $4.4 trillion pesos, inclusive of housing
leasing.

Davivienda will need to maintain its growth in diverse
business areas to keep pace with both foreign and domestic
competitors.

As with other large Colombian banks, Davivienda enjoys
diverse access to funding. While local mortgage securitization
is part of its way of life, Davivienda tapped the international
bond markets for the first time this June. Its $500 million
2022 issue attracted some six times demand. The sale followed a
$400 billion peso subordinated domestic bond issuance, and was
preceded by a $500 million peso domestic sale.
LF

Colombia
Best investment bank: Bancolombia

The race for space in Colombia’s banking sector
has been running for some time. In addition to the retail
transactions that make headlines, foreign interest has boosted
investment banking operations. In theory, this will benefit all
bank players but, for the moment, Bancolombia’s
unmatched scale across product areas gives it a substantial
lead over its competition.

The follow-up business to Grupo Sura’s $3.8
billion purchase of ING’s pension assets offers a
strong example for Bancolombia’s case.

"For the Suramericana transaction, the largest that a
Colombian company has ever done, we were a one-stop shop for
them," says Jean Pierre Serani, vice president for origination
at Bancolombia’s investment banking arm.

Bancolombia, headed by Carlos Raúl Yepes, undertook
evaluations of indicative and binding offers, and helped
arrange lines of credit for $1.1 billion credit with three
local banks. The process, culminating in a public equity sale,
took three months, Serani says.

"More Colombian blue chips are looking to expand abroad," he
says. "Also, there is going to be more local consolidation and
global private equity shops coming for acquisitions given the
growing consumer base and strong internal demand."

Inbound M&A, seen most heavily in 2012 in the financial
sector, looks set to continue. There is intense international
interest in Colombian assets and plenty of scope for
consolidation. Serani expects M&A focus will be in the
middle market of $30 million-$150 million next year.

The $1.8 billion-equivalent equity follow-on to raise funds
for Sura’s purchase was done during a tricky patch
in the international markets, and raised less from public
investors than had been aimed for. That said, it was still what
the issuer described as Colombia’s largest-ever
equity raising by a non-government entity. Bancolombia also
raised $900 million-equivalent for itself in the international
and domestic equity market during the awards period.

"Equity issuance has been a little more quiet his year,"
Serani says. "The market is still digesting what they acquired
last year. Also, the effects of the crisis in Europe have made
portfolio managers more conservative. Next year we will
probably see more activity."

Bancolombia led the domestic DCM and ECM league tables with
dollar equivalent figures of $927 million for DCM and $2.05
billion for ECM.

Among the most compelling growth areas is infrastructure
finance and in particular its implications for
Colombia’s fixed income market. The
country’s growth has left its roads below regional
standards – something a $25 billion government program
aims to address.

However, Serani says funding it will be well beyond the
capacity of the local bank market, the traditional source of
project finance. Domestic bonds backed by government payment
certificates – as have been done in Peru –
should be the way forward.

"This is going to trigger the development of the project
bond market, but we need to do short-term financings from the
banks to take care of the money needed for construction,"
Serani says. LF

Chile
Best bank: Banco de Chile

In a market peppered with other well-positioned banks, Banco
de Chile remains one of the country’s strongest,
with a 432-branch network and 1.7 million customers –
some 22% of the Chilean workforce – along with a solid
funding structure and asset quality.

It is the country’s largest bank by a host of
measures including net income, return on average capital, total
loans. Though it is not the country’s largest bank
by assets, with total assets of $44.9 billion, Banco de Chile
is the most profitable, with a return on equity of 23% as of
June, and return on assets of 2.1%.

Like many countries in the region, Chile has maintained
robust economic growth against the backdrop of slowing global
output. GDP expectations of between 4.8% and 5.0% for 2012, and
levels of growth seen around 4.5% for the next year paint an
encouraging picture says Pedro Samhan, Banco de
Chile’s CFO.

Cooling economic growth, will mean that "the banking sector
will continue growing, but at a slower pace than it has grown
during the last four months," Samhan says.

Banco de Chile is focused on expanding its retail business
via new product offerings, a new internet delivery platform and
updated mobile banking application. Meanwhile, the small and
medium enterprise segment has also been an area of competitive
advantage for the bank, says Samhan, as it looks to strengthen
customer loyalty to maintain market leadership.

In the first half of 2012, Banco de Chile led in development
agency-backed Corfo (Chilean Economic Development Agency)
guarantees, with 190 billion pesos in funding. Credit cards and
retail mortgage loans are an emphasis as well, as they are key
to relationship building with customers, the bank says.

Banco de Chile’s commercial strategy is to keep
growing its retail business and increasing its profitability in
the wholesale segment, while on the retail side, it will
continue to expand in consumer loans and fee products, he says.
And on the wholesale side, the bank will look to increase
cross-selling as it looks to grow in areas such as foreign
trade letter of credit, cash management, and treasury
products.

"Our focus will continue to be to expand in the consumer
segment, because we still have some room to grow," Samhan says.
"This is the most profitable business."

The bank will keep looking for new customer segments in
retail and wholesale and establish metrics for measuring
quality, and seek to provide competitive service, inclusive of
best practices.

As it grows, the bank’s funding has become more
diversified. It registered a bond line for $720
million-equivalent in Mexican pesos, becoming one of the few
foreign banks to tap the Mexican bond market, raising $110
million-equivalent in pesos at the end of last year. It will
continue watching the market for the right environment to issue
debt, Samhan says. The bank took advantage of international
interest in Chilean debt to place $50 million-equivalent in
2027 bonds trading on the Hong Kong market in September.

It recently announced plans for an equity capital increase
of $530 million-equivalent, aimed at solidifying the capital
structure. LF

Chile
Best investment bank: Banchile-Citi

Foreigners, with regional integration in their sights,
staked out positions in Chile’s investment banking
market in 2012. This is likely to shake up the domestic
competition, especially with the welcome the
country’s debt and equity issuers have received
internationally. Despite the backdrop, the longstanding
international partnership of Banchile-Citi, stands out as the
most balanced provider of investment banking services.

Chile has seen a relatively high level of equity issuance
over the awards judging period, particularly when compared to
other markets. Andrés Bucher, managing director at
Banchile-Citi, says that total ECM activity in 2012 will be $5
billion, lower than 2011’s $7.2 billion, but still
much higher than the $1.5 billion-$2 billion levels seen in
prior years. Banchile has worked on several large offerings
during the period, including follow-on transactions for Sigdo
Koppers, Quiñenco, Aguas Andinas and Essbio and
Essval.

The local bond market, however, has proceeded in spurts, but
mostly in line with the historical average.

Bucher says the $3 billion expected in Chile’s
local DCM is in line with averages in recent years.
Banchile-Citi led deals for clients including Inversiones
Southwater, Quiñenco and Agrosuper, giving it a league
table topping $960 million-equivalent volume during the awards
period.

A November 2011 sale for Movistar featured a $66 billion
peso tranche that Banchile says is the largest-ever corporate
placement of debt denominated in pesos. Local investors are
still conservative, a fact that limits the range of potential
issuers, with lower-rated borrowers having access to the local
bank loan market.

"The local bond market has advantages for local companies,"
Bucher says. "Local issuers can always rely on it when the
international market closes."

However, Chilean companies typically enjoy good access to
international investment, with this year’s
cross-border issuance to date already surpassing last
year’s $6 billion total.

Lower rates should attract more issuers. Higher-yielding
Chilean names are increasingly welcome, as long as they issue
dollar-denominated debt. Also of note is Chile’s
emergence as an exporter of capital, with a Santiago stop
becoming customary on LatAm DCM and ECM issuers’
roadshows.

"Maybe trading in the MILA platform [the Andean stock
exchange] is relatively small, but the concept of the MILA is
one that is here to stay," Bucher says.

Though not the region’s largest market, Chile
should continue to attract M&A interest thanks to the
perceived quality of the economy and strong credit rating,
Buchers says. Strategic and sovereign wealth funds are likely
to play a role.

Banchile-Citi advised Morgan Stanley Infrastructure Partners
on the sale of 50% of the Inversiones Saesa utility to Canadian
pension fund Alberta Investment Management. The sale fetched
$550 million, and came at a multiple of more than 16 times
Ebitda.

The bank also advised Spain’s Enagas on its
purchase of 40% in the GNL Quintero liquid natural gas terminal
from BG Group. The deal was seen at the time reaching $352
million, depending on certain milestones.

Chilean companies will continue to expand throughout the
Andes and elsewhere in Latin America. although there remains a
shortage of quality assets for sizeable M&A deals, Buchers
says. Most of the growth should be organic.

In the last six months, local investment banks IMTrust and
Celfin have been taken over by foreign investment banks
expanding in the region. The key is offering a broad selection
of products.

"This is becoming regional. Chile is a very competitive
environment, and will become more competitive with the entrance
of regional investment banks," Bucher says.
LF

Argentina
Banco Santander Río

The Argentine government doesn’t make it easy
for banks. Although they mostly remain in good shape, a slowing
economy has thrown up yet another challenge for the
country’s financial institutions.

The government forecasts growth of 3.4% in 2012, down from
8.9% last year, while output in 2013 – as a growing
number of forecasters now predict –could be still
slower.

Banco Santander Río is the biggest bank in the
country and the strongest in retail lending, which remains the
largest business line for the country’s banks. Its
$10.65 billion in assets as of year-end 2011 grant it a cushion
that leaves it well positioned to deal with a deteriorating
economic climate.

"In the past two or three years Santander Río has
been the best performer in terms of growth, profitability and
cost efficiency," says Santiago Gallo, an analyst at Fitch.

Retail lending has been the focus for the
bank’s growth. Commercial lending is growing too,
but uncertainties facing the private sector are a
challenge.

"In the coming years most of the growth in Argentina will be
in retail lending," Gallo says. "The government’s
economic model is based on strong local demand and consumption.
That fosters retail lending."

Santander Río has the largest private-sector loan
portfolio (8.8% market share) and deposit base (9.7% market
share) in Argentina. During 2011, Santander Río says the
bank accounted for 36% of the total system’s
expansion in new branches.

The bank’s net income in 2011 was $406 million,
up 5% year-on-year. It is also the most profitable with a
return on equity of 43%. Santander Río continues to be
the most efficient private-sector bank compared to peers with a
cost-to-income ratio of 46%.

"Banks in Argentina are in good shape," Gallo says. "The
risk mainly comes from the economy, from the government and the
political environment."

So far there have been no adverse effects from any troubles
from its Spanish parent. Santander plans to float part of its
profitable Argentine operation – just as it did with
its Mexican unit in September in an operation that appears to
have been successful so far. Santander
Río’s connection to Santander has also
allowed it to have one of the top capital markets operations in
the country.

Argentina’s economic slowdown could lead to a
deterioration in asset quality, though Gallo says Santander
Rio’s strengths leave it in a strong position to
face these risks, and historically it has always maintained a
high asset quality.

Gallo points out there are some factors benefitting the
country’s economy, such as a high soy price.
Nobody is expecting a crisis, but Santander Río is again
the best prepared to face any challenges ahead.
LF

Uruguay
Best bank: Banco de la República Oriental del
Uruguay

Uruguay, where GDP growth last year hit a five-year average
of 6.1%, is the envy of many larger economies in the region.
Yet the greater dynamism in its economy reflected in its recent
investment grade rating, however, has not yet translated into
greater competition in its banking sector. While the likes of
Santander and HSBC have units that have gained in size, the
government bank still dominates the system.

With a share of assets above 43%, it is hard to ignore Banco
de la República Oriental del Uruguay and its place in
the country’s system. It continues to dominate
most areas of business, and has yet to be seriously challenged
by any of the private banks.

The state-owned bank says its main strategy is to extend
universal access to financial service offerings to every corner
of the country. It is aiming to grow in the microfinance
sector. Banco de la República has opened its first
microfinance business – República Microfinanzas
– a business specializing in products and services in
the microfinance sector with operations starting in 2010 and
generating since then, adding a large number of clients and
volume of credits in the local market.

Assets under management were $12.07 billion pesos at
mid-year, up from $11.38 billion pesos the same period last
year, and representing 43% of the system. Deposits grew to
$10.4 billion pesos versus $9.73 billion pesos. The bank has a
45% of market share in deposits.

The positive trends for Uruguay, and for Banco de la
República look set to continue. Banking activity
continues to grow along with the economy, Fitch says, and
credit quality remains at historically high levels. Banking
institutions are characterized by solid levels of liquidity and
solvency.

The profitability of Uruguayan banks has not been as
positive as other indicators, Fitch says. This is thanks to low
international interest rates reducing margins, exchange rate
fluctuations and inflation.

However, Banco de la República posted a return on
equity of 28.1% for the 12 months though to June and return on
assets of 2.9%, up from 12.5% and 1.4%, respectively from the
corresponding period one year before. This compares to a 9.9%
ROE and 0.8% ROA average for the system.
LF

A surge in output in the Andean economy has seen banking
services extend far and wide – a trend that has also
meant consumer loans growth at twice the rate as that of
corporate loans over the past year.

Loans are growing at roughly 2.5-3.5 times GDP, driven by
mortgages, consumer and credit card loans.

BBVA Continental’s CEO Eduardo Torres-Llosa
tells LatinFinance it’s a trend he expects to
continue. "The number of debtors in the system is pretty low,
and we see a lot of opportunities in this segment of the
population." He expects the bank to double in size over the
next five years.

Like its other large and successful domestic competitor
Banco de Crédito del Perú, the well-capitalized
Continental enjoys ready access to funds. In August, it issued
a 10-year, $500 million senior bond, which came in around 16
times oversubscribed, Torres-Llosa says.

Challenges ahead for Peru’s banks include
making sure credit doesn’t expand too rapidly if
the economy shows signs of overheating. Equally, banking
authorities are also expected to double up efforts to find
skilled professionals to staff the burgeoning sector.

With $12 billion in loans and another $12 billion in
deposits, BBVA Continental is the most profitable bank in Peru,
Torres-Llosa says, with ROE around 35%. Its efficiency ratio is
36%, and the bank says its past-due loans ratio, at 1.2% is the
best in the system; it also has the highest coverage ratio of
non-performing loans in the system at 350%.

Torres-Llosa points to mortgage lending as one of the
bank’s core strengths. The mortgage sector is
growing more than 20% annually – an expansion
that’s likely to continue as more of the
population gains access to the financial system. Meanwhile, the
bank has been aggressively expanding its distribution network,
increasing the number of branches and ATMs by some 40%-50% in
the last three years.

BBVA Continential has pushed for an increased presence in
the payroll segment, where it has continued to grow its market
share with new products and services, jumping from 22% to 29%
in recent years. It is also number one in the medium enterprise
sector, where it has reinforced its market share, while it
looks to beef up its small enterprise expertise.

"That’s a very attractive segment,"
Torres-Llosa says. "But you have to know how to manage that
segment, because there is a lot of risk."

Though Colombia has been the focus of internationally-driven
M&A activity this year, foreigners beyond BBVA and Scotia
may be eyeing Peru more closely. Continental expects to see
more international competitors enter the country, drawn by its
growth prospects and relatively appealing regulatory
environment.

"We have to work with a sense of urgency in terms of getting
the loyalty of our clients and increasing our presence in
Peru," Torres-Llosa says. LF

Bolivia
Best bank: Banco Mercantil Santa Cruz

Bolivia’s financial system has advanced
steadily this past year. A healthy pickup in GDP growth
– to 5.1% in 2011 from 4.1% in 2010 – has
lifted the economy and allowed total assets in the system to
increase by 16.4% in that time, while profits have grown
36%.

The scale of the market’s largest bank, Banco
Mercantil Santa Cruz has meant it has no peer in terms of
strength and profitability.

"The country is going through a positive economic
performance which is tied to the performance of the financial
system," Darko Zuazo BMSC’s president, tells
LatinFinance.

The bank has hit two important milestones, he says: its loan
portfolio reached $1 billion in the first semester of 2011, and
BMSC now has over $2 billion in assets.

The bank has $1.79 billion in deposits – a growth
of 17.2% in the second half of 2011, easily maintaining its
position as the largest in the country. Profitability for BMSC
on an ROE basis was 23.4% in 2011 year-end versus 26.8% as of
the same period last year.

Its return on assets increased slightly to 1.53% as of
year-end 2011, versus 1.31% at the end of 2010. The increase
was in part thanks to a new cash processing area, which the
bank says has reduced operating costs.

The bank has reduced its non-performing loans through its
special operations division and decreased non-performing loan
assets as a percentage of the loans from a NPL ratio of 6% in
2010 to 3.42%.

With its position well established, BMSC’s main
strategy is to continue to modernize its technology: this
includes implementing the first self-service electronic
platform in Bolivia, and new services for customers through
ATMs and internet banking.

Its 2013 strategic plan includes increasing the number of
branches and ATMs while leveraging technology to grow its
assets and loan portfolio, Zuazo adds. The bank has also
initiated operations of Empresa de Transporte de Valores, a new
company that transports cash and valuables.

One channel for growth in Bolivian banking could be through
the country’s growing and profitable microfinance
segment. BMSC would like to increase its presence in
microfinance, although Zuazo says the bank does not expect a
substantial expansion in this area in the short to medium
term.

"There is talk there could be entities for sale, but it is
not a buyer’s market with only four to five known
microfinance entities in the country," says Zuazo.
LF

Ecuador
Best bank: Banco Pichincha

In an increasingly competitive marketplace, one of the chief
aims of Ecuador’s Banco Pichincha over the past
year was to diversify its services, says Jorge Chiriboga, the
bank’s vice president for financial control.

The bank’s total assets grew by 13.6% from
December 2011 to August 2012 to $7.67 billion, with consumer
credit growing by 19.6% and commercial credit by 18.8%. But the
bank’s profitability was down, to give a return on
equity of 13.8% from 15% and a return on assets of 1.3% from
2.1%.

In fact, the profitability of the entire financial system
declined, as changes to the regulatory environment hit balance
sheets and forced banks to become more adaptable.

ROE for the sector dropped from 18.9% in December 2011 to
14.9% in 2012.

This has called for nimble planning and strategy, says
Chiriboga. Measures have included price ceilings on interest
rates and fees on financial services, as well as tax reforms,
and divestment of assets.

"These levels of performance are the result of a strategy
that favors efficiency and strict cost control, and whose focus
is to generate adequate levels of profitability and solvency,"
says Chiriboga.

As part of regulations introduced this April, financial
institutions are limited in which services they can charge for.
This, added to another layer of restrictions –
announced in July 2011 but which came into force this July
– has prevented private sector financial institutions
from holding stakes in insurance and brokerage companies.

The bank has sold off its Fondos Pichincha, Seguros del
Pichincha, Pichincha Casa de Valores and Consorcio del
Pichincha units.

Pichincha plans to increase its national presence and to
attract more customers to the formal banking sector. It is
looking to expand its non-bank network to some 5,000 so it can
cover more ground, Chiriboga says.

The bank bought Lloyds Bank’s assets and
liabilities for $20 million in 2010. It bought
GMAC’s assets in 2011 for $38.5 million. The
Lloyds acquisition heightened relationships with corporate
clients, and the latter helped Pichincha consolidate in vehicle
financing, says the bank.

Further expansion through M&A remains a possibility,
though the bank indicates that it "does not rule out the
evaluation of opportunities that may be of interest in the
country and the region."

Pichincha is weighing up issuing a dollar bond –
possibly for $100 million – in the international
markets, though timing has yet to be determined. (The bank has
issued shorter-term dollar debt domestically but has yet to
sell long-term debt internationally.)

Presidential elections next February will play a large part
in determining the future regulatory environment for banks
– and analysts say a win by incumbent Rafael Correa
could mean yet more controls on financial institutions.
LF

Venezuela
Best bank: BBVA Provincial

Venezuela presents a challenging environment for any bank.
But high margins tend to make up for problems caused by
inflation and an uncertain operating climate.

October’s re election of Hugo Chávez as
president has re-assured Venezuelans, if nothing else, that
there will be political continuity – though the
economic outlook remains murky.

"It is a complicated economic and regulatory environment for
banks to operate in," says Theresa Paiz-Fredel, an analyst at
Fitch. "The cost of inflation weighs on their efficiency."

BBVA Provincial stands out in Venezuela, not least for
having an ample cushion to deal with the uncertainty.

Its total assets of 82.9 billion Bolívares ($19.3
billion) as of mid-year, are smaller than those of Banesco and
state-owned Banco de Venezuela, according to the
country’s bank regulator. But it is more
profitable, with a return on average assets of 6.5% and a
return on average equity of 62.6%.

For the second straight year, BBVA Provincial’s
size and strength mean remains best placed in the banking
system to face these challenges. In addition to being among the
most well capitalized banks, the bank’s risk
management and strong asset quality also set it apart from its
peers. The bank has higher loan loss reserve levels and capital
coverage as well as lower exposure to government assets than
most of the sector, which is dominated by public sector banks
with, in general, lower asset quality.

"Banks in Venezuela tend to be highly profitable in nominal
terms," says Paiz-Fredel. "They have wide interest rate margins
which can compensate for credit costs and inefficiency."

Higher margins – the net average interest in 2011
was 11% – have insulated Venezuela’s
stronger banks. There has also been a shift to less regulated
segments, and to retail lending, which has higher margins.
Growth was strong in 2012, thanks to loose monetary and fiscal
policy in the lead-up to the elections.

Nationalization talk died down before the elections, and the
government, despite lingering perceptions that this will not
always be the case – has not taken over a financial
institution since mid-sized bank Banco Federal in 2010.

Fitch expects 2013 to be more challenging, but not
necessarily detrimental to domestic banks’ overall
performance. There has not yet been a deterioration in asset
quality, Paiz-Fredel says, and the banks remain adequately
capitalized. LF

Costa Rica
Best bank: Banco de Costa Rica

Costa Rica’s banking system is dominated by
three large government-backed banks that are similar in size,
and compete in many of the same areas. This year, Banco de
Costa Rica stands out from the other two for having weathered
an economic environment that still throws up challenges,
despite having largely recovered from the 2008-2009 crisis.

Costa Rica’s economy is expected to grow by
3.7% in 2012, down a touch from the rates above 4.0% seen in
2010 and 2011 supported by industry and services and steady
recovery in consumer credit. And in general, the economic
recovery of recent years has meant an increase in demand for
banking services.

BCR is the second largest bank in Costa Rica with $5 billion
in total assets, a 24% market share, according to Fitch. Like
all state-owned banks, it benefits from an explicit sovereign
guarantee; it also possesses the largest branch and ATM network
in the country – a fact that’s
contributed to an ample and diversified deposits base.

A reordering of the private banking sector is on-going with
greater competition emerging from foreign banks, he says. In
January, Colombia’s Davivienda bought
HSBC’s assets in Costa Rica El Salvador and
Honduras, and so could be in a better position to grow more
strongly than HSBC.

That said, little has happened in recent years to disturb
the dominant hold that BCR, Banco Nacional de Costa Rica and
Banco Crédito Agrícola have on the sector.

Turcios says credit has been BCR’s greatest
growth area, in both business and personal banking. The
bank’s credit portfolio grew 18% in 2011, thanks
to growth in segments including debit and credit card services,
internet banking and mobile banking.

BCR’s main focus is to increase its loan
portfolio. This includes a focus on growth in residential
mortgages and consumer loans, while also striving to increase
its lending to small and medium-sized enterprises.

The bank is also planning to diversify its funding sources.
Turcios says it plans to issue an international bond early next
year. As of late October, Costa Rica’s government
– benefitting from ratings upgrades as BCR has
– was planning its first sovereign international bond
since 2004, which should help set a benchmark.
LF

El Salvador
Best bank: Banco Agrícola

Despite an uptick in GDP growth, the competitive balance
between El Salvador’s banks is little changed from
2011.

Banco Agrícola remains the largest and strongest bank
in the country. Its $3.07 billion in assets at mid-year are up
from $3.54 billion 12 months earlier, according to the bank,
and are nearly double the second place bank, according to
regulatory data.

Banco Agrícola is also the most profitable. It posted
a return on average assets of 2.54% as of mid-year, as head of
the banking system, and its return on average equity of 17.64%
was second highest.

The bank’s financial performance have been
driven by declining credit costs, gradually rising margins and
a slight growth in its loan portfolio. Banco
Agrícola’s market share in terms of assets
at year end was 28.2% and deposits 27.2%.

Its business, as of mid-year, is split between its
commercial operations, accounting for 46% of its business,
consumer banking, 40%, and mortgage lending 14%.

The bank represents a strategic presence for Bancolombia,
which acquired the bank in 2007, in the country as well as in
Central America. El Salvador has seen little other foreign
competition since then.

As with the dominant banks in many of Latin
America’s smaller economies, Banco
Agrícola’s size leaves it in the safest
position to withstand an economic downturn that might threaten
asset quality.

This is particularly important in El Salvador this year. The
economy, closely tied to that of the US, continues to slow
while fiscal pressures and increasing public debt leave it
vulnerable to external shocks.

Fitch forecasts GDP growth of 2% for 2012 and 2.3% for 2013.
Foreign competitors, such as Citi, HSBC, Banco G&T
Continental and Scotia have yet to match
Agrícola’s numbers, and should find it
difficult to do so given the prospect of continued slow growth.
LF

Guatemala
Best bank: Banco de Desarollo Rural (Banrural)

Mergers in the past decade have seen
Guatemala’s banking system come to be dominated by
its two largest banks, Banco Industrial and Banco G&T
Continental. Against this backdrop however, well managed Banco
Rural (Banrural) has grown – quietly, but with
vigor.

Banrural’s assets stood at 35.48 billion
quetzals ($4.53 billion) at mid-year, up from 30.35 billion
quetzals the year before and just 24.31 billion quetzals three
years ago, according to central bank data. It has nearly caught
up to second-placed G&T Continental’s 35.91
billion quetzals, and has become the second largest by
deposits. That said, catching Banco Industrial’s
50.11 billion quetzals of assets is still a tall order.

A focus on consumers and micro and small enterprises has
served Banrural well. Its profitability compares favorably with
the country’s two largest banks. And it posted a
return on equity of 23.9% as of mid-year, second only to
Continental, which it bested in terms of return on assets of
2.7% to 1.95%.

Banrural efficiency ratio dipped over the awards period
– a concern for analysts given the bank’s
size and consumer lending concentration – from 40.1%
to 39%. Yet despite "weak" efficiency metrics, the bank
"compensates with high margins," says Edgar Cartagena, an
analyst at Fitch Ratings.

Still, the focus of its lending, and a more limited revenue
diversification than the big banks, could leave it vulnerable
to any economic downturns. The bank is mainly geared towards
financing consumption, as well as micro, small and medium
companies, with a smaller share in corporate lending.

Guatemala’s economy grew at 3.9% in 2011, and
the growth rate should average 3.3% between 2012 and 2014,
according to Fitch. Among today’s chief sources of
concern are the country’s high crime rate and
social instability, as well as in the prospect of a downturn in
the US economy.

But Banrural’s sound local franchise, high
profitability, strong capital metrics and ample deposit base,
as well as its improving capital ratios over the past five
years (which have stabilized over in the last two fiscal years)
have left the bank on a relatively sound footing. The
bank’s core capital to risk weighted assets stood
at a high of 15.1% this June, well above the average of the
Guatemalan banking system. LF

Panama
Best bank: Banco General

Panama has a deserved reputation as having Central
America’s most dynamic banking sector –
and recent economic growth has meant there has been even more
room for expansion. But this growth has, as yet, to lead to
major changes in market share, with Banco General still the
dominant player.

The bank, as Panama’s largest locally owned
bank, possesses one of the largest branch networks in the
country, significant market share and a reputation for
consistency and conservative policies.

"Banco General has consistently executed a conservative
strategy, building on its strengths and cautiously yet
decidedly approaching new business initiatives," says Diego
Alcazar, an analyst at Fitch.

"You don’t see rapid growth such as you see in
Peru and Colombia, but Banco General has steady margins, a well
diversified portfolio and the largest market share in
mortgages. It has been able to solidify its corporate lending
and consumer lending with a conservative approach."

The bank had $9.88 billion in total assets as of mid-year,
up from $8.97 billion the year before. Its market share in
loans was 17.9% and deposits 24.9% keeping it at the top of the
banking system. Profitability remained about the same, with
return on assets of 2.77% up from 2.64% the year before and
return on equity of 21.48% down slightly from 21.76%.

Because of its slippage as the market leader for loans and
deposits, the bank’s strategic plan for 2012-2014
involves bolstering its competitive position, as it bets on
sustained economic growth rates.

But the country’s banks need to be careful:
while economists are sanguine on growth, inflation is
threatening to hit 6% this year – higher than the
government would like. Fears that authorities may be
overspending have stoked fears of imbalances ahead that could
hurt growth.

"There are hiccups, yes, but Panama has a stable economic
environment and that consistency is reflected in the overall
stability of the country," says Alcazar.

Banking sector growth is expected to be mainly in the retail
sector, where Banco General has been cautiously seeking to
increase its market share.

The cost of credit should gradually increase as the bank
enters riskier markets and promotes riskier products, says
Fitch. But given the bank’s risk-averse culture,
the dangers of such a move are likely to be limited –
with the rewards, ultimately, significant.
LF

Dominican Republic
Best bank: Banco Popular Dominicano

This year has been a challenging one for banks in the
Dominican Republic. Despite some growth in retail, mortgage and
consumer credit, the story for the country’s
lenders has been largely one of less growth and
profitability.

The run up to presidential elections this year witnessed a
fiscal expansion that has led to a deterioration of the
country’s fiscal accounts, according to Barclays.
It estimates a fiscal deficit of 4.3% of GDP in 2012, likely to
shrink to 3.0% of GDP next year.

Against this backdrop, the central bank was forced to take a
conservative stance: interest rates have therefore been higher,
leading to a decline in consumer lending. Banks are also
investing more in government assets and directing fewer
resources to lending. A 1% tax on banks’ financial
assets in effect from June 2011 to June 2013 has also made life
difficult and challenged growth levels.

In this context, Banco Popular Dominicano –the
country’s biggest private bank in terms of assets
–has maintained growth above the rest of the system.
Its size has served it well in a more challenging environment.
Total asset levels rose 15% increase at year-end to $5.3
billion from its $4.6 billion in 2010. It also saw its net loan
portfolio rise 16% from the year before to $3.3 billion.

"Compared with its peers, the bank has a wider deposit base,
and that’s the source of liquidity to grow," says
Larisa Arteaga, director at Fitch.

The bank’s diversity, retail lending and
deposits have all contributed to its maintaining a solid
portfolio, she says. The bank’s consumer loan
portfolio, meanwhile, aside from credit cards, grew to $35
million, and it is the biggest mortgage lender in the country,
with 25.4% of the market in 2011.

Banco Popular Dominicano has, in terms of asset volume, a
33% share in the banking market. Its total deposits grow about
14% to around $4.5 billion.

The bank has 28.2% of the market for commercial loans, which
continues to grow. The bank says it is the largest issuer in
the Dominican Republic of credit and debit cards.

Its prospects are boosted by a fiscal reform package
unveiled this October by the new administration, which analysts
say is likely to revive a flagging economy – and, with
any luck, create a better environment for the
nation’s banks. LF

Jamaica
Best bank: National Commercial Bank

Jamaica’s economic woes have not made life easy
for its banks – and conditions are not expected to
improve soon.

After struggling through a prolonged recession, last year
Jamaica’s real GDP grew by 1.5% and is forecast to
grow by just 0.5% this year, according to Fitch, which expects
an average growth rate of 1.0% for 2013-2014.

National Commercial Bank of Jamaica, which had total assets
of J$379.4 billion ($4.23 billion) as of mid-year – up
by J$31.5 billion dollars from the year before –
remains the country’s largest player, rendering it
best equipped to handle any further economic deterioration.

NCB accounts for nearly a third of the assets in the banking
system. At the end of the first quarter, it held the largest
market share in loans (38.1%) and deposits (38.4%) in the
commercial banking industry, according to the central bank. It
also has the largest branch network and capital base.

NCB has concentrated recently on developing its retail
operations – particularly consumer credit and
unsecured consumer loans, credit cards, mortgages and car
loans. Small and medium-sized business (SME) lending is also
growing, which is a positive sign for the bank, says Theresa
Paiz-Fredel, an analyst at Fitch.

The bank has grown in spite of the country’s
poor economic activity. Loans were up by 18.4% compared to June
last year, and non-performing loans stand at 7.1% of gross
loans, as opposed to 7.3% the year before. Deposits were also
up 13.3% from June 2011.

NCB ranks top in loan share, deposits and equity, generally
dominating its market ahead of much smaller banks, Paiz-Fredel
says, noting that foreign banks’ presence has
offered some competition, though not enough to knock NCB from
its perch.

As of March this year, NCB was the leader in terms of loan
market share, at 38.1%, and deposits 38.4% on the commercial
side, according to the bank. Its size means it does not need to
rely on any one specific product area.

"Relative to other banks in similar markets,
NCB’s income streams are much more diversified,"
Paiz-Fredel says.

While NCB’s loan portfolio has been highly
concentrated, it is diversifying as corporate lending declines,
Paiz-Fredel says. The bank has also invested in technology and
IT, so its efficiency should improve down the line. NCB says it
plans to continue focusing on deposit portfolio growth.

For the year ahead, it highlights strategic initiatives that
include centralizing underwriting and delinquency management
functions. LF

Trinidad & Tobago
Best bank: Republic Bank

Trinidad and Tobago, home to four large commercial banks and
four smaller institutions, boasts a competitive financial
sector. But size and stability give Republic Bank an edge not
just over its domestic rivals but over most other Caribbean
markets as well.

The bank has the largest market share in terms of deposits
and loans, and – in an environment of excess liquidity
and low interest rates – profited from increases in
credit demand.

Assets at the bank have risen to about $47 billion, from
approximately $46 billion in 2010, and net profit after taxes
of $1.2 billion is up from approximately $1.1 billion in 2010.
Its return on average assets climbed to 2.51% from 2.43% while
its return on average equity stands at 16.0%, compared to 15.3%
in 2010.

Growth has come from its real estate and vehicle market
lending as well as credit card-related technology developments.
Banks able to improve their informational systems and curb
operational costs can make up for revenues from private
operations, says Moody’s analyst Alexandre
Albuquerque – a fact that’s also positive
for margins.

Mortgage lending continues to thrive, he says , and is the
only market segment where the outlook remains solid. The credit
system grew 3.1% nationally to March, driven by the real estate
market, which went up by 9.8% first quarter. Business lending,
by contrast, was 5.7% in June, and was down to 5.1% in
July.

But compared to historical standards, overall credit growth
is weak, at 2.9% in August on an annual basis. This has led
banks to remain conservative in terms of their approach to new
and existing business.

"Most of the concern over the economy is due to the fact
that prices in the energy sector are still going down," says
Albuquerque. Trinidad and Tobago is seeking to expand its oil
and gas output to take advantage of strong demand for gas in
South America, Europe and Asia.

Albuquerque predicts GDP growth forecasts ranging from 0.9%
to 1.2% for the year ahead following a 1.4% contraction in
2011. But he says that on the positive side, banks are well
capitalized, have quality assets and so are cushioned against
the worst effects of potential losses. LF

Best regional strategy
Santander

Much talk has been made of European, and particularly
Spanish, banks’ troubles in recent years. But the
effects of the European crisis have yet to have any major
impact on their Latin assets.

For international banks such as BBVA and Santander, these
regional operations represent their crown jewels. The name of
the game has been monetizing assets without pulling out of the
region completely.

Santander found itself needing to address a €6.47
billion ($10.08 billion) capital shortfall to meet new
requirements imposed by European regulators last year. Its
profits were sagging as well, falling from €8.18 billion
in 2010 to €5.35 billion in 2011. Profits at the Latin
American units have held up well, declining only from
€4.73 billion to €4.66 billion.

Santander has raised a large chunk of capital through the
sale of parts of its best operating assets in the region. The
strategy is still underway, and, when complete, should have
resulted in the IPOs of all of its units in the region that
have not yet gone public.

In December 2011, the bank raised $949 million by floating
an additional 7.8% of its Chilean bank. The sale drew more than
$1.95 billion in orders, and was buoyed by a decision to extend
the lock-up period for the shares to one year. About 70% of the
buyers were international, up from the one-third foreign
participation often seen in Chilean equity deals. The bank,
considered one of Chile’s two strongest along with
Banco de Chile, has a 33% free float.

On the same day of the flotation, Santander made perhaps a
bolder move, exiting completely from Colombia.

The Spanish bank was unlikely to do anything in the
Colombian market, with its unit there holding $4 billion in
total assets, and representing a 2.7% market share in loans and
4.7% in deposits. Financial assets in Colombia have been going
for pricey multiples in the past year, so Santander was able to
raise $1.23 billion by selling the bank to Chile’s
Corpbanca – itself a growing regional player through
Andean acquisitions.

These transactions were followed this year by the much
anticipated IPO of its Mexican unit, perhaps the most highly
regarded of its Latin operations in an economy that has become
an investor favorite. The $4.1 billion sale represents
Mexico’s largest-ever IPO and analysts expect it
to prove a boost for equity activity in the country.

With investors putting in for more than three times demand,
the issuer could have priced at the top of the range, but left
some breathing room and came at the midpoint. The sale
represents a 25% float, valued the bank at $17 billion, and
stands out in what has been a poor year for ECM. The shares
have gained more than 20% since the IPO as of late October.

The asset sales should continue. An IPO for Santander Rio,
the largest bank in Argentina, is reportedly also on the card.
Santander has a shelf allowing it to sell an additional 8.2% of
its Brazilian unit, which could bring in about $2 billion.
Struggles in the Brazilian new issuance market may have
compelled the bank to wait.

The outlook for Europe remains uncertain, but Santander has
managed to boost its capital while still retaining a dominant
hold on its successful operations. BBVA, already putting
pension businesses up for sale, is expected to follow suit with
a flotation of its Latin American business.
LF

Best multilateral
Inter-American Development Bank

Typically, multilateral lenders come to the fore in moments
of crisis and retreat from the spotlight once better times
return.

But this past year, a kind of limbo has descended. No one
can argue that all is well: on any day the wrong European
headline can freeze up financial markets across the whole of
Latin America. But at the same time, many financial
institutions have become inured to global uncertainties and,
armed with a belief in the region’s inherent
stability, have pressed on regardless.

This is the backdrop for multilateral lenders operating in
Latin America: they must be ready to intervene in case of
crisis, but also continue to find ways to facilitate the flow
of capital – even in markets where prospects appear
more favorable.

Over the period from the second half of 2011 to the first
half this year, the Inter-American Development Bank (IADB) has
done both. The bank, led since 2005 by Luis Alberto Moreno, had
approved $4.46 billion in the year to August 30, and has
disbursed $3.67 billion in that period.

Unsurprisingly, the IADB sees infrastructure as a key growth
area, especially as lending capabilities at many of the
region’s commercial banks languishes at low
levels.

And it has been taking the initative in financing projects:
The bank led a $430 million A/B loan for the Empresa Brasileira
de Terminais Portuários (Embraport) in Brazil in
November 2011, after more than a year of structuring.

The $100 million 15-year 'A’ loan came directly
from the development bank. The $330 million 12-year
'B’ loan portion pays Libor plus 300bp and counted
WestLB, Santander, Caixa Geral, and HSBC as participants. A 633
million reais BNDES loan and $255 million in equity from
sponsors Odebrecht Transport, Dubai Port World, and Coimex
completed the funding. The new container terminal at
Brazil’s Santos port facility can handle 1 million
teu.

The deal is a rare project financing for Brazil and the port
sector where, in both instances, more balance sheet-oriented
financings are the general rule. Embraport is the first major
greenfield port transaction in Brazil with full market risk and
the deal is notable for having closed during the depths of the
European debt crisis.

Also that month, the IDB agreed to lend Sao
Paulo’s state government $1.15 billion to support
construction of the northern segment of the Rodoanel Mario
Covas, also known as the São Paulo ring road. The loan
features a five-year grace period and adds to $980 million
coming from Brazil’s federal government and $890
million from the state government.

"Infrastructure is more cyclical – the projects
take time to develop and it depends on the political cycle to
push the projects forward," says Jean-Marc Aboussouan, head of
the bank’s infrastructure division.

He expects a wave of opportunities on the back of
legislative advances to public-private partnerships (PPPs) in
countries such as Mexico, Uruguay and Colombia. This should
begin to materialize in the middle of 2013.

Brazil’s recently announced infrastructure
spending also offers a number possibilities. However, it is a
trickier environment for multilaterals, despite successes such
as Embraport and the Rodoanel. Aboussouan says the bank must
work to find its place alongside massive lending from BNDES and
other Brazilian government institutions.

The IADB is also keen to promote renewable energy;
Aboussouan says the bank has financed nearly 800MW of the
2,000MW of power generation installed in the region.

The bank provided a $76 million equivalent peso-denominated
loan for the Macquarie Infrastructure Fund’s
Mareña wind project in Oaxaca, Mexico, part of a $950
million total project cost. The IADB is also identifying
opportunities – particularly in solar and
hydroelectric generation – in other countries,
including Uruguay and Peru.

The bank has also sought to aid the development of local
markets by supporting financial institutions. In May it
partnered Banamex with a $150 million partial credit guarantee
facility to back issuance of Mexican local debt securities.
This followed a similar facility for corporate issuance by
Leasing Operations de Mexico, in a framework agreement with Ixe
Casa de Bolsa.

Chile’s Banco BICE and Brazil’s
BicBanco became the first financial institutions in the region
to tap an IADB credit facility to boost lending to health and
education. The banks were lent $50 million each directly, in
addition to a syndicated portion for BicBanco.

Looking to the future, bank officials talk about the need to
get better access to different pools of liquidity.

In March, the IADB and Export-Import Bank of China announced
plans to start a $1 billion fund to invest in Latin America.
The fund is on the verge of starting operations, with $150
million contributions initially to be made by each party.

"The trend will have to be finding ways to work with
institutional investors, beyond just working with financial
institutions," says Jozef Henriquez, the bank’s
head of syndications. "That’s where the liquidity
resides right now."

Henriquez points to the recent Oaxaca II and IV wind project
bonds and the bond financing for SBM Offshore’s
floating production, storage and offloading vessel (FPSO) as
positive developments. He says there should be a role for bank
lending alongside institutional investors and to use the
IADB’s guarantee products to provide
enhancements.

"With Basel III coming up, all of the multilaterals active
in Latin America will have to find a way to work beyond with
just the banks," Henriquez says. "You have to find different
pockets of liquidity." LF

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